A quick guide to KiwiSaver
KiwiSaver. It’s there on your payslip and it pops up everywhere from your bank letters to your day to day finances, but do you really understand what KiwiSaver is? If you’re still in the dark about KiwiSaver, it’s never too late to learn now, so we’ve put together all the need-to-know information about KiwiSaver and why you should be taking it seriously.
What is KiwiSaver?
KiwiSaver is New Zealand’s voluntary retirement fund which allows you to save money effectively in the long term. Inland Revenue describes it as a “voluntary retirement savings scheme to help you save for your future.” This savings scheme is overseen by the New Zealand Government, where contributions from both you and your employer are set aside in this scheme, alongside an annual government contribution dependent on how much you have contributed each financial year.
The money saved is used by your KiwiSaver provider (fund manager) for investment in a variety of areas and assets, managed through a fund. Your money effectively buys you units of this fund, which is correlated to the weighted price/value of assets invested in, giving you ‘ownership’ of a portion of these investments. Over time, the value of these units you hold in the fund will increase as the market value of your KiwiSaver investment increases, helping you save money and build wealth much faster than what a savings account might provide.
As the purpose of KiwiSaver is to help Kiwis save for their retirement, there are strict rules regarding withdrawal of funds. This means that you can only withdraw money from your KiwiSaver if you are:
At retirement age (65) and eligible for the New Zealand Superannuation benefit.
Intending to buy your first property/home, and have been a member for 3 years minimum.
Have moved overseas permanently over one year ago.
In significant financial hardship, or suffering from a significant illness, injury or medical condition.
To further understand the limitations, restrictions, and withdrawal options associated with your KiwiSaver plan, make sure to read the product disclosure statement or guide for detailed information. IRD also outlines these conditions succinctly here.
Where do I sign up?
To join KiwiSaver, you must be a New Zealand citizen or entitled to reside in New Zealand indefinitely. Your employer will automatically enroll you in KiwiSaver if you were eligible at the time of hire, with the government or your employer allocating a provider for you; however, you may have opted out and exited the scheme. Otherwise, if you are self-employed, unemployed, or had previously opted out of KiwiSaver, you can join KiwiSaver by directly contacting and registering with a provider. Further information about eligibility and the process can be found here.
When setting up your KiwiSaver scheme along with your employment, you will be able to choose what percentage of your gross salary to contribute to KiwiSaver. This will be taken out of your pay and sent to your KiwiSaver provider by your employer, along with their employer contribution. The minimum (and default) contribution percentage is 3%, but there are higher options such as 4%, 6%, 8%, and 10% for more aggressive savers.
Who are some KiwiSaver providers?
As mentioned before, the KiwiSaver saving scheme is overseen by the government but managed separately by providers. KiwiSaver providers are simply financial institutions which will manage the funds your KiwiSaver invests in, essentially doing all the investing and hard work for you in return for a small fee charged each year. There are many providers, with many familiar options including banks such as Auckland Savings Bank (ASB), Australia and New Zealand Banking Group (ANZ), Bank of New Zealand (BNZ), KiwiBank, and Westpac.
These five banks are part of the nine default providers selected by the government, and are highly popular providers given the comfort and trust Kiwis have with these institutions. However, there are many other KiwiSaver providers which offer arguably better fund options to suit different people, as well as different fee schedules, so don’t be afraid to shop around when choosing a KiwiSaver provider.
The other four default KiwiSaver providers are specialised financial institutions; namely, AMP, Booster, Mercer, and Fisher Funds. These institutions usually specialise in investment, and will offer a much larger range of fund options for your KiwiSaver money to be put into, giving you more control and freedom in how your money grows.
A list of other KiwiSaver providers can be found here, each offering something different to be competitive. Do some research on whether a certain provider’s fund option will meet your saving plans, and check out what the fees will be like for your invested money over time. This is your future that you are saving for, so it’s best to get it down right at the start!
What are the benefits of KiwiSaver?
By now you might be wondering ‘what’s the point?’ While it may seem that KiwiSaver is just another way for you to save, which you could do on your own through personal investments or savings accounts, there are strong benefits to KiwiSaver. The most significant benefit is the contributions from your employer and the government — it is free money handed to you, no tricks involved.
For every dollar you contribute into your KiwiSaver scheme, the government will contribute 50 cents in response, up to a limit of $521.43. In other terms, you only need to contribute $1042.86 each year, and will receive the full government contribution to help build your retirement nest. Similarly, your employer is legally obliged to contribute at least 3% of your gross salary to your KiwiSaver, if you are enrolled in a KiwiSaver scheme and are making contributions deducted from your pay. In fact, some employers will match your contribution percentage up to higher percentages in order to foster good saving habits and financial planning amongst their employees.
Another significant benefit is the stability and effectiveness of KiwiSaver as a long-term investment. If you consider common options such as term deposits in today’s market, the interest rate is much lower than several years ago, at almost pitiful rates under 1%. This has highlighted the effectiveness of KiwiSaver; for example, the ASB KiwiSaver growth fund has shown a 9.81% return per annum. This is only one example of many, with KiwiSaver schemes across the board providing solid investment returns since inception. It doesn’t take much digging to realise that these high rates of return when compounded over time allow your retirement fund to snowball and grow exponentially. Whether you are saving for your first home further down the line, or even further in the future for retirement, KiwiSaver offers a strong investment opportunity that is also extremely stable and safe. It is always in your best interests to maximise your money, hence KiwiSaver is a tempting pathway to ensure you are saving and investing competitively.
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